Insurance and Incentives in Sharecropping

This essay surveys some recent empirical works about sharecropping. The basic theoretical trade-offs are discussed in the introduction. Section 1 discusses the empirical research on resource allocation. This section is divided in two subsections: one studying the effects of tenure stability on land improvements, and another comparing the impact of different share rates on input use and farm productivity. Section 2 surveys works testing different arguments raised to explain the design of tenancy contracts. The essay then concludes with a brief summary discussing some important policy implications.

Risk and Insurance in Sharecropping

This essay summarizes some recent empirical contributions on two aspects of sharecropping: (i) the effects of the contractual form (incentive power and contract length) on resource allocation and farm performance; and (ii) the exogenous elements behind the choice of different contractual forms.Empirical, Sharecropping, Survey

Hierarchic contracting

We analyze the contracting structure in a moral hazard setting with several agents whereoutput is produced jointly and is the only contractible variable. Since the salary of each agentis a function of all agents efforts, a positive externality arises between them. This externalityis not internalised by a centralised structure where the principal contracts directly with eachagent. Instead, we find that a hierarchic structure (i.e. the delegation of "contracting rights"from the principal to the agents) internalises the externality by making agents "residualclaimants". Consequently, the second best situation can be improved upon just by changingthe contracting structure of the principal-agents relationship. The analysis is relevant to theliterature on decentralisation, outsourcing, subcontracting and intra-firm organization.Principal-multi-agent relationships, moral hazard, team production,decentralisation, hierarchies, contract design

Market Competition and Lower Tier Incentives

The relationship between competition and performance-related pay has been analyzed in single-principal-single-agent models. While this approach yields good predictions for managerial pay schemes, the predictions fail to apply for employees at lower tiers of a firm’s hierarchy. In this paper, a principal-multi-agent model of incentive pay is developed which makes it possible to analyze the effect of changes in the competitiveness of markets on lower tier incentive payment schemes. The results explain why the payment schemes of agentslocated at low and mid tiers are less sensitive to changes in competition when aggregated firm data is used.Cournot competition, contract delegation, moral hazard, entry, market size, wage cost

Management economics in a large UK retailer

We study the link between middle-management ability and shop labour productivity using data from 245 shops of a UK nationwide retailer. The company scores six broad areas of management practice, the most important of which turns out to be "commercial awareness", where able managers achieve 17% higher labour productivity in their shops compared to less able ones. We further show that the managers’ incentive pay scheme, required to encourage them to exert their ability in full, is implicitly an insurance one, with managers taking a share in deviations of actual sales from expected. At the same time, abler managers do not receive higher pay all else equal, which implies that middle management ability is not fully tradeable.

Retail Contracting: Theory and Practice

Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/73114/1/1467-6451.00032.pd

Social Exchange and Common Agency in Organizations

We study the relation between formal incentives and social exchange in organizations where employees work for several managers and reciprocate a manager’s attention with higher effort. To this end we develop a common agency model with two-sided moral hazard. We show that when effort is contractible but attention is not, the first-best can be achieved through granting autonomy of effort choice to employees and giving bonus pay to both managers and employees. When neither effort nor attention are contractible, an ‘attention race’ arises, as each manager tries to sway the employee’s effort his way. While this may result in too much social exchange, the attention race may also be a blessing because it alleviates managers’ moral-hazard problem in attention provision. Lastly, we derive the implications of these contract imperfections for optimal organizational design.social exchange, reciprocity, incentive contracts, common agency, organizational design

Multitasking, Competition and Provider Payment

Many important dimensions of quality health care are difficult to observe, monitor, and motivate. This paper examines how competition among providers interacts with payment system incentives when the allocation of provider effort among multiple such dimensions or ‘tasks’ is noncontractible. The framework highlights that an optimal provider payment system, including optimal risk adjustment, should take account of provider multitasking.payment incentives, competition, multitasking, capitation, managed care, rationing, risk adjustment

Rational Sabotage in Cooperative Production with Heterogeneous Agents

We present a model of cooperative production in which rational agents might carry out sabotage activities that decrease output. We provide necessary and sufficient conditions for the existence of a Nash equilibrium without sabotage. It is shown that the absence of sabotage in equilibrium depends on the interplay between technology, relative productivity of agents and the degree of meritocracy. In particular we show that, ceteris paribus, meritocratic systems give more incentives to sabotage than egalitarian systems.Cooperative production, sharing rules, sabotage